Outsourcing + Alignment = Conundrum

21 Nov

With a company of hundreds or thousands of employees, ensuring each department and branch is aligned with the larger corporate objectives is a daunting task. For myriad reasons already explained by d112221671 and ac04. Maintaining alignment between technical and business functions is very difficult to achieve. But when an organization adds a third party in the form of outsourcing the situation becomes even more complicated.

73% of firms say they outsource part of their I.T. application service, while 62% of respondents say they outsource infrastructure services, while it is only second to investment in cloud computing in terms of I.T. functions firms invest in. And with Gartner consulting agency reporting that IT outsourcing is set to reach $252 billion in 2012 the importance of achieving IT-business alignment in the business field cannot be overstated.

Ian Hayes of Clarity Consulting has stated there are 3 levels of engagement in which alignment can be achieved with the outsourcing firm. At the executive level the strategy underlying the outsourcing must continue to be the most viable option. At the next level the relationship with the vendor must be flexible and make economic sense. Next the scope of the functions outsourced must be relatable to the needs and wants of the company. And lastly, at the lowest level, “companies must ensure that the day-to-day performance of their outsourcing projects results in measurable, acceptable service to the end user community.”

Maintaining the alignment   

Often this will boil down to two characteristics: vigilance and flexibility. Vigilance on the part of the senior management to gauge where misalignment is occurring and tweak it so that the relationship with the outsourcing vendor is still a complementary one, whether changes in social or economic climates dictate a change in the outsourcer, outsourcee relationship. Flexibility on the side of the vendor to be able to respond positively to a change and a willingness to align it product with the wider corporate goals.

Hayes also points out tools for establishing and maintaining alignment.

  •  An executive steering committee to provide direction and strategy, and set overall priorities
  • Vendor meetings to negotiate and re-negotiate the scope of the project(s) and work on relationship issues
  • A Program Management Office to manage the day-to-day operations of the engagement
  • An IT Strategic Plan to define and clarity objectives for the outsourcer
  • A flexible master contract to enable rather than inhibit change
  • Operating principles to tell the participants how to perform their work on a practical basis
  • Statements of work to define the scope of the project(s) and assign responsibilities
  • Service level agreements to define acceptable levels of performance and performance goals
  • Customer satisfaction surveys to gauge how happy end users are with the outsourcer’s performance and serve as a double check on the service level agreements
  • Performance metrics to measure various facets of the outsourcer’s performance
  • Pay structures, incentives and penalties to motivate the parties to perform in the best interests of the outsourcing engagement.

Poor vendor relations, unrealistic expectation, projects that are too isolated from the business and poor performance are all cited as reasons for misalignments.

Establishing and maintaining alignment is a critical step to any successful outsourcing project. Misalignments will occur but planning and anticipation will ensure a smooth resolution. Vigilance is needed to spot any potential errors and flexibility needed to solve them.

http://www.clarity-consulting.com/alignment_when_outsourcing_summary.html

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7 Responses to “Outsourcing + Alignment = Conundrum”

  1. agblogail November 22, 2012 at 9:22 pm #

    Interesting post. I came across an article by James Brain Quinn and he believes firms now realise that “outsourcing for short-term cost-cutting does not yield nearly as much benefit as outsourcing for …strategic benefits”. I find this ties in with what you state in your blog, where alignment can be achieved with the outsourcing firm as long as the tools are followed, and alignment may actually improve as firms are free to focus on thier core competencies.

    • thestrategicblogger November 23, 2012 at 2:35 pm #

      Thank you for your post agblogail I agree that senior management are now free to concentrate on their strategic aims, the crucial thing though is not to outsource key competencies.

  2. gashe2k12 November 26, 2012 at 2:13 pm #

    Great work strategicblogger. I m currently looking into the outsourcing field and your work has really helped with my understanding.

  3. cdat2 November 27, 2012 at 11:47 am #

    Good post thestrategicblogger! You stated that “73% of firms say they outsource part of their I.T. application service, while 62% of respondents say they outsource infrastructure services, while it is only second to investment in cloud computing in terms of I.T. functions firms invest in.” I found these statistics very interesting and strongly reinforced the point you were making. I am curious to know how new this data is and what type of firms were questioned?

    • thestrategicblogger November 27, 2012 at 12:58 pm #

      I m glad you enjoyed the post the figures were extracted from Bluewolf a global Agile Consulting Agency and their report entitled “The State of IT Outsourcing” comes from August 2012. The information was gathered from their list of clients which include GSK, Zynga, Black & Decker, Compuware, NBC Universal and Avon Products. A diverse and reputable list I m sure you ll agree.

      • cdat2 November 27, 2012 at 2:59 pm #

        diverse and reputable indeed! very current data. Well done again!

Trackbacks/Pingbacks

  1. Achieving Strategic Alignment. « So Opinionated … - November 21, 2012

    […] ways that this may be achieved.  I think thestrategicbloggers post on Outsourcing and Alignment (https://sopinion8ed.wordpress.com/2012/11/21/outsourcing-alignment-conundrum/ ) shows the additional difficulties that may be incurred. Some of the items (such as strategy maps, […]

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